FBI believes Stanford was running massive Ponzi scheme

The Federal Bureau of Investigation believes that Sir Allen Stanford was
running a giant "Ponzi" scheme which may have encompassed other
parts of his empire, in addition to the $8bn (£5.6bn) of investors' funds
that are now the subject of civil fraud charges.

By James Quinn, Wall Street Correspondent

8:51PM GMT 20 Feb 2009

The FBI, together with the US Attorney's office, is understood to have reached the view after sifting through the charges made by the US Securities and Exchange Commission (SEC) and as a result of its own investigation into the activities of the Texan billionaire's business.

Sir Allen Stanford

Civil charges levelled by the SEC on Tuesday steered clear of calling the scheme a Ponzi – where a fraudster takes funds from new investors to repay earlier investors – despite continued speculation about Sir Allen's operations.

FBI investigators are now understood to be working out what criminal counts Sir Allen could be charged on. They are working closely with colleagues from the Drugs Enforcement Agency, which is understood to have been conducting a separate probe into his activities for a number of years.

It is now known that US investigators from a number of federal agencies – including the FBI, SEC and the Drugs Enforcement Agency – began looking at his operations as early as 1997, but failed to take decisive action.

More than 50,000 customers are understood to have invested in Sir Allen's certificate of deposits (CDs), which are essentially medium-term savings products usually offering a fixed rate of interest.

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SEC filings for $2bn of Stanford International Bank CDs in November 2007 show that Sir Allen had already attracted $896m from investors for the certificates.

They also show that some $60m of the $2bn was for "referral fees for licensed agents" – equivalent to a 3pc introductory fee on customer investments.

Had the 3pc charge applied to all the $8bn of CDs issued by Stanford, the fees would have totalled $240m.

Such a structure is highly unusual, as the majority of US banks which offer CDs do not charge set-up fees.

Meanwhile, the man charged with liquidating Bernard Madoff's assets said that after sifting through 13 years' worth of documents, there was no evidence the former financier had ever purchased any securities or investments for customer accounts.

"We are now getting a feel for how this operation worked," said Irving Picard, the court-appointed trustee, during a meeting with Madoff creditors.

About 2,350 claims have been made to date by investors who lost money in the alleged $50bn fraud.